Company Notes Digest 1.17.14

A digest of some of the top insights that I’ve gathered from this week’s earnings calls.  Full notes can be found here.

The Macro Outlook

Jamie Dimon is unequivocally optimistic about the economy

“We didn’t use the word cautiously optimistic, we’re using the word optimistic, because we are actually optimistic. You have a U.S. economy starting to grow. You will see loan growth and volume growth across all of these businesses. We are actually optimistic about the U.S. economy in particular.” ($JPM)

John Stumpf agrees: The economy is starting the year in the best spot in five or six years

“I mean, we sit here this January at an economy and frankly as a company in better shape and I have said here in the last five or six Januarys, so, yes, I am [proudly] optimistic about the industry and optimistic about our company able to grow loans and over time grow revenues.” ($WFC)

Banks finally have a clear runway

“Our merger is done. Capital liquidity, credit, legal issues, view on regulatory all better. Deposit growth, loan growth, cross-sell, the engagement of the team. So all of those things are better” ($WFC)

Customers are thinking about investing, expanding

“I am hearing more, when I talk with customers, about their interest in building something, adding something, investing in something. So there is more activity going on…yes I am optimistic about the economy.” ($WFC)

The credit environment is exceptional

“I think the conservative consumer, conservative banks and a stable environment have just led to exceptional credit that persists to this day” ($COF)

And management at Suntrust, at least, is giving its loan officers a long leash

“what I tell the teams is, “Keep growing, and I’ll tell you when to stop.” Because right now, I don’t think we’re going to run up short-term against the limit.” ($STI)

Signs that residential mortgage demand may have picked back up a little too

“in January, with the rates moving down a little bit and stuff, you saw another tick up of about 20-25% in application volume in our book already.” ($BAC)

But WFC thinks home price appreciation will slow in 2014

“While we don’t expect the same rate of home price appreciation we had last year, we do expect the housing market to continue to recover which will benefit the U.S. economy and despite the rise in home prices and interest rates over the past year, housing is still very affordable.” ($WFC)

Big institutions rebalancing in 3Q and 4Q towards fixed income

“in the third and fourth quarter, we did see rotation out of index equities, but I’m not certain that rotation all went back into active equities. It was a — and much of it was rebalancing. Because of the huge gains in U.S. equities, a lot of pension plans did rebalancing into fixed income.” ($BLK)

The rebalancing is more seasonal than long lasting

“you generally see the big rebalancing institutionally in the fourth quarter and some people in the first quarter. In our survey that we’re releasing, we did — we heard that there’s still more rebalancing but not so much. If the Institutional survey that we’ll be releasing today is an indication of what the big macro trend is, more investing in alts, and so I don’t think you’re going to see a persistence of rebalancing out of equities into bonds. I think this is just — as I said, it’s more seasonal, especially in light of the equity run.” ($BLK)

Financials

Somewhat conflicting views on reserve releases

WFC thinks there is still room

“We do think we are going to have future loan loss reserve releases.” ($WFC)

BAC says reserve releases to slow from here

“I think you’re closer to the end on magnitude, from a reserve release perspective. It’s always a little bit hard to predict, obviously…But generally, I would say…you’re going to see the reserve releases, given the magnitude they’ve been, you’re going to see those slow down as well” ($BAC)

Competition in the C&I space has gotten intense

“We see solid customer demand for loans as we head into 2014, but would note that competition is particularly aggressive for middle market loans” ($BAC)

Lots of competition in auto too, but card not too bad in comparison

“when I cross calibrate to some of the intensity that you see across all of banking, I think general — regular old sort of vanilla C&I lending, I think is certainly — that a lot of banks are just rushing into that. You have quite a run into the auto business as well. I think the card business stands out as a — in a stable place and one that the survivors in that business can, I think, do well on a stable basis” ($COF)

Demand for CRE loans has turned the corner

“We’ve been talking now for several quarters that we sort of turned that inflection point in commercial real estate, where now we’re really starting to see core growth.” ($STI)

It wasn’t an easy environment for CEOs to execute M&A transactions in 2013

“The advisory business for a CEO making a decision on a merger, it’s a career defining decision and against the backdrop. Again, go back and look at 2013, against the backdrop in one quarter you are contemplating what is tapering mean and then two quarters later, you are contemplating a government shutdown at that difficult backdrop to make a career defining decision” ($GS)

Investment industry moving away from style boxes

“the investment landscape is moving away from traditional style boxes as clients focus on achieving outcomes rather than buying products. BlackRock has built a very strong foundation to be the leader in the solution and outcome space.” ($BLK)

Even the largest purveyor of passive ETFs still believes in active management

“BlackRock’s actively managed business is essential to our future growth as we look to generate alpha for our clients.” ($BLK)

“Just being invested is not enough. Clients need to be properly positioned. At the core of BlackRock’s value proposition for clients is our ability to constantly challenge ourselves and to evolve in the face of these changing market trends and client needs.” ($BLK)

Systemic risk a function of products, not asset management institutions

“it was not the largest institutions the asset management had that created any of the real problems…isk is going to be lying in products. So we need to make sure that products are going to be analyzed in making sure people understand the systemic risk around products and the leverage associated with those products.” ($BLK)

Technology

Intel saw signs of stabilization in the PC market. Particularly in desktops

“The PC Client Group was down 4% for the year, but the business began and stabilized and actually grew a bit in the fourth quarter achieving all-time records of i5 and i7 unit shipments. The desktop business was particularly strong in Q4 growing 11% over last year. ($INTC)

Enterprise purchases were weak on the server side though

“Enterprise, however, fell short of our expectations for the fourth quarter and the year as we overestimated the rate of recovery among corporate buyers” ($INTC)

PC market may be stabilizing because we’ve reached a saturation point in the tablet market. Emerging markets not quite saturated yet

“we think what we’re seeing in Asia is just that the tablet penetration rate increased that’s offset by a couple of years from what we saw in mature markets and so that’s why and we’re seeing some stabilization and improvement in mature markets. It’s ahead of emerging markets is we have just reached saturation points on tablet penetration and then the emerging markets are still increasing.” ($INTC)

Healthcare

Headwinds for health insurers in 2014

“There are certainly near-term 2014 pressures, particularly from ACA implementation and Medicare funding actions that will divert more than $1.50 per share in earnings from us in 2014″ ($UNH)

Already playing for 2015

“We will continue to focus on delivering earnings per share growth in 2015 with our ultimate performance, dependent in part on the results of the Medicare Advantage rate-setting processes for 2015.” ($UNH)

For now just waiting and watching to see how the public exchanges turn out

“in terms of the public exchanges, I think you know that we’ve got a very modest footprint. And as I shared at Investor Day, our decisions around 2015, our participation will really be very much reliant on how this market matures. So at this stage, we’re really not projecting our participation. We will be looking at sort of the — how robust the enrollment is, what the risks in those markets are and the consumers participating and, quite frankly, the cost structure is on those markets.” ($UNH)

Pricing power still pretty strong, partially bolstered by ACA

“Our pricing in 2014 is stronger than it was in 2013. And you mentioned it, a part of the reason that it’s stronger is because of the ACA fees, taxes, as well as the essential health benefits across all markets. And then when you look at small group and individual, the move to community rating, depending on which part of that marketplace you’re looking at, you could see some much stronger pricing.” ($UNH)

Miscellaneous Nuggets of Wisdom

Two philosophies on market share:

Market share only gets you so far if not attained profitably

“the focus is not about market share the focus is about generating appropriate revenue, making sure that we are meeting the needs of our customers and doing that very efficiently.” ($WFC)

On the other hand, don’t just manage to margins. A delicate balance.

“we’re not managing the business on a quarterly basis to a margin. We’re not actually managing the business at all to a margin. We’re trying to balance both growth and profitability to come up with kind of the Goldilocks solution.”

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.